The Consensus On Big Banks Shifts, But Not At Treasury

By Simon Johnson, co-author 13 Bankers: The Wall Street Takeover and The Next Financial Meltdown

Attitudes towards big banks are changing around the world and across the political spectrum.  In the UK, the new center-right government is looking for ways to break them up:

“We will take steps to reduce systemic risk in the banking system and will establish an independent commission to investigate the complex issue of separating retail and investment banking in a sustainable way; while recognising that this will take time to get right, the commission will be given an initial time frame of one year to report.”

The European Commission, among others, signals that a bank tax is coming; presumably, as suggested by the IMF, this will have higher rates for bigger banks and for banks with less capital.  And other European officials are increasingly worried by the lack of capital in German banks, by the recent reckless lending sprees in Ireland and Spain, and by the dangers posed by banks that are much bigger than their home countries (e.g., Switzerland).

Yet top Obama administration officials refuse to change their opinions in the slightest; they have dug in behind the idea that they represent the moderate center on banking policy.  This is a weak position; it is simply a myth with no factual basis – the people who pushed effectively for more reform over the past few months were the center, not the left, of the Democratic party.

In the best profile to date of Tim Geithner, by John Heilemann in New York Magazine, even the Treasury Secretary himself expresses frustration with the biggest banks – calling them “the warlords”.

“The irony here was rich, of course, since Geithner’s stabilization scheme would turn out be strikingly favorable to Wall Street. From the outset, his aim was never to punish the banks. Quite the contrary, it was to save them—by pouring money into them, restoring confidence in them, treating them with kid gloves. Nor was his goal to restructure the financial system. It was to prevent the existing system from collapsing and then strengthen the rules governing its operation. In all this, Geithner was betraying the extent to which he shared Wall Street’s mind-set, even if he wasn’t a creature of it. “His office was there and he was deeply enmeshed in that culture and he had those relationships,” says one of his best friends. “That part of the critique is fair.”

David Brooks argued in the New York Times on Friday – writing about a different industry – that this is unavoidable, and perhaps normal:

“Finally, people in the same field begin to think alike, whether they are in oversight roles or not. The oil industry’s capture of the Minerals Management Service is actually misleading because the agency was so appalling and corrupt. Cognitive capture is more common and harder to detect

More specifically, however, it’s not that “people in the same field begin to think alike”, but rather that “people who are supposed to regulate” begin to see the world through the eyes of the biggest private sector players.  Note, for example – and this is important – most hedge fund managers agree big banks are dangerous and will again mismanage risk in a reckless manner.

And cognitive (or cultural) capture, as we argued last year in The Quiet Coup, runs deep in the financial system.  Last year David Brooks rejected our argument; it seems the graphic failures of big oil have further shifted the consensus.

Geithner insists that, above all, he represents the reasonable center of responsible opinion,

“I care about us passing [reform legislation] good and strong,” he tells me. “And my feeling is that you have to do this from the center.”

But this is simply not a left-right issue (look at the blurbs and reviews for 13 Bankers).  This is regulatory capture, as laid out by George Stigler from the University of Chicago (a man of the right) – supersized by the increasing gap since 1980 in incomes between the regulated and the regulators (see Figure 2 in this paper, on p.29, by Thomas Ferguson and Robert Johnson).

Mr. Geithner is no closer to a moderate, centrist view on the financial sector than Robert Rubin and Larry Summers were vis-à-vis derivatives (and financial deregulation more broadly) in the 1990s – as documented at length in 13 Bankers.

The constraints on size, leverage, and activity of our largest banks could have been much stronger in the Senate bill (and presumably in the final legislation).  Matt Taibbi has a good account of what was (and what could have been) and this is not denied by the administration (speaking to John Heilemann):

‘If enacted, Brown-Kaufman would have broken up the six biggest banks in America,’ says the senior Treasury official. ‘If we’d been for it, it probably would have happened. But we weren’t, so it didn’t.’

(In case you missed it, Brown-Kaufman was an amendment to the main financial reform bill in the Senate; more detail here.)

The people in charge of our strategy towards big banks are not fools and they are not corrupt; they are also not doing things just because someone on Wall Street calls them up.  Our top policymakers are simply convinced that what is good for the biggest and most dangerous element on Wall Street is good for the American economy.

This is cultural capture in its purest and most extreme form.  It increasingly stands out as a problem both in the US context and around the world.  Unfortunately, the White House and Treasury may be the last to realize this.

121 responses to “The Consensus On Big Banks Shifts, But Not At Treasury

  1. Kal Palnicki

    So long as the lobbyists on the banks’ payroll keep bribing Congress no reformative change is possible.

    So long as this nation requires elected legislators to spend much time and effort raising funds needed to retain office, those with ready money will rule this nation.

  2. “Geithner, Summers, and Obama had little interest in tackling those matters, not because they are indentured servants to Wall Street but because at heart they are all technocrats who believe the system doesn’t need to be rebooted or downsized, merely better supervised.”

    Team Obama reminds me of those unpopular kids in class who want so badly to be liked by the popular guys, that they’ll help them cheat on their homework. Then, when they’re no longer useful and get cast aside, they’re stunned and in disbelief.

    Yet, given the opportunity, they keep coming back for more. Look how the administration handled BP. Does the administration really think that when all this is said and done – after Team Obama has blown yet more credibility denying the extent of the leak and downplaying the catastrophe to shield BP – the oil industry will be its friend?

  3. Charles Almon

    AND they will need jobs when they leave office.

  4. joanrimart

    Yes indeed. This nation is ruled by a fascist elite. The corporate-financial-military complex, which is Mussolini’s wet dream.

  5. Jeremy Brown

    I often think the political elites decrying campaign costs as justification for lobbyist contribution is an all too convinient crutch to lean on. The truth of the matter is probably far more greed driven.

  6. You say they are not fools or corrupt, and I can accept that as a caution against unproductive overheated rhetoric. But from the standpoint of an ordinary citizen, “cultural capture” sounds like little more than a dubious euphemism for a particular, dangerous form of folly.

    Adults are not only supposed to be capable of rational and ethical thought, they are supposed to engage in these processes regularly. If our top policymakers are really convinced that what is good for the most dangerous element on Wall Street is good for the economy, they clearly are not thinking ethically, or perhaps even rationally. This matters in very concrete ways to hundreds of millions of people, and excusing the regulators’ failure with a catchphrase seems counterproductive.

  7. Kal Palnicki

    All elected legislators operate under the nonsensical belief that this country is desperately in need of their essential skills and ability to be of service. They can’t be of service if they lack the funds to retain office so they sell off what they believe are dribs and drabs of minor harm to this nation in return for funding. Unforunately for this nation hundreds of dribs and drabs amount to serious damage. We need to get away from privately funded elections.

  8. More specifically, however, it’s not that “people in the same field begin to think alike”, but rather that “people who are supposed to regulate” begin to see the world through the eyes of the biggest private sector players. Note, for example – and this is important – most hedge fund managers agree big banks are dangerous and will again mismanage risk in a reckless manner.

    And cognitive (or cultural) capture, as we argued last year in The Quiet Coup, runs deep in the financial system.

    That’s at the core of why it’s simply impossible to “regulate” rackets. Any attempt to do so could at most acheive a temporary retrenchment, and then the attrition campaign would resume, and in a short time we’d be back where we started or worse.

    No, the only choices are to live in perpetuity under the thumb of these gangland rackets, or destroy them.

    That’s why breaking up the TBTFs is the necessary core of any true solution.

  9. For a general audience I think it’s politically most effective and philosophically sufficient to call them all “criminals” and “corrupt” regardless of the intricacies of the psychology of various actors.

    But since “know your enemy” is an essential principle, for anti-corporate activists it’s probably important to hash out these things, i.e. who’s consciously corrupt, who’s a corporatist by ideology, who’s been “captured”, and so on.

  10. As james tobin noble winner) sid: “the terms in which a problem are stated and in which relevant information is organized can have a great influence on the solution.” so this reflects the economic policy theories opf the advisor. so the game of policy making is rigged. the theory used determines the questions asked and the options that are presented. the prince is constrained by the theory of his intellectuals.
    minsky, stabilizing an unstable economy.
    the industry picks their leadrs, they have a lock on the fed in terms of policy, and they influence the white house; fiat accompli.
    the term I have used to describe this in blogs is a conspiracy of thought. there doesn’t have to be an overt conspiracy. but by design a conspiracy of thought happens, hence the benefits go to just a few.
    happens in academia, jobs, promotions, etc. they managed to get a rigged system adopted that privaizes gains and socializes losses, and gets a useless theory that justifies their max profits. notice no austrian economists in high positions. the solutions would decrease banking profits. this is the rigged conspiracy of thought. this was your quiet coup mr johnson

  11. George Recco

    Until we get campaign finance reform, all other attempts at reform will remain a huge waste of time.

  12. perhaps for legal reasons Mr. johnson can’t call these policy makers crooks. But it is clear for everyone else. they take a bribe in the form of lobby money or future employment in return for legislation.

  13. This is probably the best explanation. Obama & Co. have been trying to be the “cool” administation from the beginning.

    At some point, however, wannabes go from trying to be cool to being fully corrupt – and by corrupt I mean knowing full well that what they are doing will hurt other people and doing it anyway because they believe they will personally benefit.

    I find it very difficult to believe that in late 2008 the stakes in this game were not fully transparent to Geithner. The way he has behaved since then doesn’t show that he is deluded in his pursuit of being the cool kid; it shows that he doesn’t give a damn about his country.

  14. Thorstein Veblen, author of The Theory of the Leisure Class, provides the best socio-economic insights into the process of cognitive capture. Last week, I combined Veblen with the insights of Sheldon Wolin in what I entitled The Obama administration as “managed democracy”. Here are the last two paragraphs – and I am quite serious about “barbarian” –

    Earlier, I quoted Veblen on the origins of the Leisure Class. Veblen’s reference to “barbarian” is crucial, because the more advanced a society becomes industrially, the more removed from real industry the elites become. In a very real sense, the elites become more barbaric. This devolution of business culture is clearly seen in how the meme of “ripping their faces off” has spread from the trading floors of Wall Street in the 1980s (as captured in Michael Lewis’s first book, Liar’s Poker: Rising Through the Wreckage on Wall Street), to the rest of the business world. As the elites drive the culture downward into ever more primitive barbarism (think of what modern art and modern architecture have become), the very idea of civic virtue comes under explicit attack. We see this in the assaults by “conservatives” on the idea of the common good being a “liberal codeword” for nazism or socialism, i.e., Glen Beck’s recent warning to his followers about the dangers of their churches preaching the gospel of social justice.

    Which brings us back to the theme Sheldon Wolin develops in Democracy Inc.: Managed Democracy and the Specter of Inverted Totalitarianism. Whether or not President Obama is a sell-out is not the real question we must face. The real question is: what are we going to do about the corporate culture that has come to dominate our politics?

    You will have to read the original to get all the links.

  15. Maurice Rondeau

    The answer lies as much in our political culture and system as it does anything else. When a politician can run for an office for years rather than weeks as they do in Europe, it becomes exceedingly difficult for pols to bite the hands that feed them. The recent SCOTUS decision on corporate contributions will surely add to the floodtide of “bribes” that influences regulatory decisions.

  16. curious steve

    what are the options?

    1) going back to the wild west early capitalism?
    2) revive Marx idea that the “post-modern / post- structuralist left” assassinated?
    3) complete the domination of the fascist tribe?

    i see the rest of the world choosing option 2, whereas the US is at the crossroad of options 1 and 2.

  17. I fully realize that many will take issue with the following, but that’s okay. As the old saying goes, “The truth will set you free” couldn’t be more appropriate.
    As one of the 50,000 share holders in a law suite against the SEC ( CMKM/CMKX CASE – Case Number CV10-00031 JVS (MLGx) SERVICE OF CMKM.CMKX $3.87 TRILLION SUIT VS. S.E.C. I can personally attest to the truth of the following which you can read all about at the link provided below. All of us are going to experience a jaw dropping event that will forever change the way we view our government and that day is very rapidly approaching. For those that are old enough to remember it as well as those who don’t, you may wish to dust off your copy of Seven Days In May. Yes. Truth can be stranger than fiction.

    http://www.worldreports.org

    OBAMA CONFIRMS BIDEN, GEITHNER, EMANUEL BRIBERY
    PRESIDENT INTERVENES PERSONALLY TO STOP RELEASES, THEREBY MAKING HIMSELF PERSONALLY LIABLE FOR BILLIONS OF DOLLARS PLUS INTEREST.
    We now have proof that the Obama WHITE HOUSE is a criminal enterprise.

    HODGES’ HAND-DELIVERED LETTER TO BUCKINGHAM PALACE DATED 26TH MAY 2010

    • HODGES’ HAND-DELIVERED LETTER TO BUCKINGHAM PALACE DATED 28TH MAY 2010
    THIS LETTER IS OF EXCEPTIONAL IMPORTANCE AND TELLS YOU THE STATE OF THE CRISIS.
    COUNSEL FOR THE BLACK CAUCUS READ MR HODGES LETTER DATED 26TH MAY 2010 TO
    OBAMA ABOARD AIR FORCE ONE AND INFORMED HIM THAT HE WILL PERSONALLY BE
    LIABLE FOR BILLIONS OF DOLLARS HAVING INTERVENED IN HIS PERSONAL CAPACITY.

    • OBAMA WAS ALSO TOLD THAT IF HE DIDN’T RELEASE THE FUNDS IMMEDIATELY, THE BLACK CAUCUS WOULD ABANDON HIM TO HIS FATE. VICE PRESIDENT BIDEN WAS ALSO MADE AWARE OF THE 26TH MAY LETTER AND COMMENTED THAT AS HE IS PERSONALLY COMPROMISED, HE COULD NOT TAKE OVER FROM OBAMA IN THE EVENT THAT HE IS REMOVED FROM OFFICE.

    After you read what is offered with proof at the above site, take a deep breath and just let it all begin to sink in. The game plan has always been to go back to the organic Constitution while killing off the corporate US. Let the games begin.

  18. “The people in charge of our strategy towards big banks are not fools and they are not corrupt”

    Really ? I beg to differ.

  19. Kal Palnicki

    I am amused by Barbara’s contribution. I have seen such conspiracist writings many times before and I have never found them credible. Somehow proof fails to appear. So be it.

    Let the oligarchs who run the universe ontinue to work in secret except when they write letters revealing all and those letters are known to exist by those who can never seem to reveal them publicly but only as a sop to the guys who are truly in the “double secret insiders club”.

  20. cluster fox

    the only current practical solution to the american banking situation is that there is no solution.

    the american banking system will continue to spiral downward until there is an implosive collapse resulting in the end of america as we know it…

  21. “The more corrupt the state, the more laws.”

    Publius Cornelius Tacitus – AD 56 – AD 117

  22. 3,000 Pages of Financial Reform, but Still Not Enough

    May 28, 2010 – New York Times – excerpt

    “FOR decades, until Congress did away with it 11 years ago, a Depression-era law known as Glass-Steagall ably protected bank customers, individual investors and the financial system as a whole from the kind of outright destruction we’ve witnessed over the last few years.

    Glass-Steagall was a 34-page document.

    The two bills that the Senate and the House are currently chewing over as part of what may be a momentous financial reordering weigh in at a whopping 3,000 pages, combined.

    Yet despite all that verbiage, there are flaws in both bills that would let Wall Street continue devising financial black boxes that have the potential to go nuclear.”

    http://www.nytimes.com/2010/05/30/business/30gret.html

  23. Kal, I’m the last person in the world that subscribes to conspiracy or other such nonsense. Do some due diligence regarding the lawsuit as it is only the tip of the iceberg. As to why Tiny Tim can’t raise funds to support our over the top lifestyles that we have enjoyed in our country for years, go back into Christopher Story’s archives. You’ll come to understand why the US Treasury hasn’t printed any new bills since 2008. Take a peek into your wallet and take a look see. China now owns us and the nearly 100 year rip off known as the Federal Reserve has run its course.

    The sad fact is that the fourth estate has been warned by rouge elements in our government not to touch this story with a ten foot pole and thus far they have abided by that demand. That will end soon enough as they will have no choice to ignore what is taking place in real time.

  24. Jose Navarro

    Obviously our government is bought, and they do not give a damn what people feel, or need. They know people are busy with their electronic gadgets, and that government can disrupt (or buy) any true people movement…Establishment is complacent, and they seem to have forgotten about the law of diminishing returns….

  25. I began paying attention to politics in the early 1970’s. Since that time I have been inundated with stories about the Federal Reserve and its machinations. I have looked at right wing conspiracy theories and left wing conspiracy theories and the longer I look the less I see other than silly repetition. Every new crop of conspiracists seems to discover it in the same vein as each new batch of teenagers discovers sex as next best new thing.

    Rouge elements in this country tend to be right wingers and libertarians neither of whom seems capable of independent research or critical thinking. Stop believing and start knowing. Try to find all of those secret documents that you are being told exist and the teller knows of but can’t supply.

    This is a country that seems to think it is legal to bribe legislators under the cover of campaign funds and offers of massively overpaid jobs after retiring from office or defeat. Such activity is the reason this country is slowly being flushed down history’s toilet.

    Public financing of campaigns and a death sentence for those who bribe legislators as well as for those accepting the bribes should correct some if not most of the problems.

  26. postmodernprimate

    Corruption in broad daylight isn’t frightening enough I guess.

    “Sure, a corrupt oligarchy has taken over our government but there was no secret meeting in a smoke filled room so I’m just not feeling it.”

  27. That Geithner looks for the interest of banks is clear, also he had convinced Obama that more regulation will make all those trillion of dollars that WallStreet moves will go to somewhere else to continue the game, so he’s too afraid to do anything, the truth is until a worldwide goverment puts some rules it’ll be near impossible to coordinate financial reform worldwide, remember that markets do not care about ethics, they’re ready to move their companies to Caimans islands or Hhong kong…

  28. This is the number one problem in politics!

  29. Time will tell Kal. But don’t be surprised when the ground beneath your feet begins to shift in ways otherwise thought unimaginable.

    This country, with its institutions, belongs to the people who inhabit it. Whenever they shall grow weary of the existing Government, they can exercise their constitutional right of amending it or their revolutionary right to dismember or overthrow it.

    A. Lincoln

  30. Simon writes: “This (the sanctity of TBTF) is cultural capture in its purest and most extreme form. It increasingly stands out as a problem both in the US context and around the world.”

    I have been mulling over something which may be related. In city of Vancouver (British Columbia) where I live, the cost of a single family home recently reached a record-setting $1 million. Statistically, it takes 75% of the pre-tax income of an average family to service the mortgage on a home; ie, an average family can no longer purchase a home. This at a time when interest rates are at historic lows.

    According to Michael Hudson, the “excess” income people earn is “taxed” by the banks in the form of mortgages and interest. The banks use this money to finance the construction of more homes and this is how a housing bubble is created. Hudson says that governments have abrogated economic planning to the financial system.

    I’m not sure if I have got this right, but Hudson seems to be saying, government should be taxing property; rather than allowing banks to “tax” the income of citizens through mortgage and interest payments. In this way there would be government income for public goods and housing bubbles would be prevented.

    What Hudson calls “junk economics” includes: (1) a deregulated financial system leading to housing and financial bubbles, (2) non-taxation of unearned income,(3) privatization of the Commons (ie, water, natural resources, infrastructure, utilities).

    Hudson makes an interesting point. He says economics grew out of universities that historically were religious institutions. Economics evolved out of moral philosophy and redistributive justice. In other words, the early economists were trained as ministers and they were trying to alleviate the poverty and suffering of the serfs and peasants in a feudal system when the land and resources were owned by the aristocracy.

    Here in Vancouver, where I live, the value of a home is in the land (not the home itself). Clearly, people who are maxed to the limit paying off their mortgages are neither landless peasants nor aristocrats. They should be the backbone of the middle class. What has happened is most people have their “retirement pension” invested in the value of their homes. So if our government taxed the value of their property it would not go over well.

    What I find alarming is the corporate tax rate in Canada was 30% in 2000. But will be reduced to 15% by 2012. This at a time when there are dire warnings our universal healthcare, pensions and even public education is underfunded and unsustainable; while owning your own home is no longer affordable.

    I can’t help feeling Hudson is on to something when he says what is needed is a “mixed economy”. Where there is economic planning by the government and where capitalism is regulated.

    (Yes! To the free-market proponents reading this. The regulation of capitalist enterprise. Witness the BP oil disaster in the Gulf of Mexico. The cost of this disaster will be socialized. There is a $75 million cap on BP’s liability. It will take billions and billions of dollars to mitigate some of the damage from this oil spill. Only nature will ever be able to make the Gulf whole again.)

    Simply sticking fingers in the dikes that are holding back the notional value of $600 trillion in OTC derivatives is not going to work.

    Reducing the size of TBTF is part of what is required to restore proportion to civic life and the financial system.

  31. To free-market exponents on this blog. Please tell me how privatization of the Commons (water, resources, utilities, infrastructure) is socially good.

  32. Kliment Voroshilov

    “The people in charge of our strategy towards big banks are not fools and they are not corrupt; they are also not doing things just because someone on Wall Street calls them up. Our top policymakers are simply convinced that what is good for the biggest and most dangerous element on Wall Street is good for the American economy.”

    I don’t know what’s at stake for Johnson here, a government post of some kind, perhaps, but his experience with “financial reform” has taught him nothing, whine and fuss about it though he did so petulantly a week or so ago. The people in charge of our policy toward the big banks may not be fools, but, assuredly, Johnson is. So that he won’t have to acknowledge the plain-to-everyone-else corruption at the heart of Treasury and Fed policy and make a moral judgement, Johnson rationalizes that what’s wrong is a kind of agreement on philosophy, the position either of someone shot-through with ambition or that of a wuss. Call it what you wish but watch how fast campaign contributions to these bacteria or to their political sponsors can can “capture” them culturally. Until Johnson grasps this fact he will be nothing more than the most profoundly pedestrian of economic analysts. Clearly he’s not there yet.

  33. What has become inescapably clear is that the giving of “political contributions” from entities having business dealings with recipients of those monies constitutes BRIBERY in its most essential form.

    As such, it should be prosecuted, not condoned!

  34. Kliment Voroshilov

    I think you’re safe to call them criminals, Russ. No one needs to manipulate here. The truth is enough.

  35. One of the problems is this…even if Congress could pass laws that would get the U.S. out from under the thumb of the Big Banks….the Supreme Court could (and probably would) over turn it….remember the Citzens United case…? When you talk about “enemy of the people”, every one focuses on the Federal Government…the three branches of government, the Executive, Congress and the Department of Justice…the truth is…”we” can vote for the government officials, recall them (in some states) even impeach, but “we” can’t touch the “Supremes” and we need to change that, desperately…they do as they please, are answerable to no one (not to the President, Congress, the DOJ or “we the people”) “we” don’t elect them, “we” can’t vote for or against them) they have become political activisits, right-wing Corporatists, accutely partisan, and they are appointed for life

  36. The idea of the “elite” driving a cultural descent into “barbarian” behavior/morality is, to say the least, an intriguing concept. The reference to taking notice of today’s art and architecture “scenes” (barbaric in their blatant Hollywood/Celebutante/Spectacle-ness) is a nice introduction into the ongoing economic and social debates. “Noblesse oblige” [sic} and any semblance of modesty, morality or even decent manners among the elite has been deemed “So last year” as to have become nearly erased from memory.

  37. “The people in charge of our strategy towards big banks are not fools and they are not corrupt”

    Actually they are corrupt, and the corruption is on a magnitude of a third world dictatorship.

    Summers, Rubin, Geithner and their minions have been working for a very long time to give their Wall Street friends, and themselves, the freedom to do whatever they want. Starting with the disposal of the Glass-Steagall Act, which to this day languishes among cobwebs and mothballs.

    The unprecedented wealth stolen from the markets by these miscreant gamblers has created a massive war chest with which Wall Street can buy presidents, the House and the Senate.

    Our reps are overwhelmingly very wealthy people with an insatiable appetite for more, for themselves and their cronies. Their disdain for the people who put them in positions of lucrative power is shockingly palpable.

    Not least of all, we have a system that furthers this criminal mutual admiration society with endlessly growing expectations of obscene contributions to feed the rising rates of the TV ads and the pretenders’ very expensive cohorts with pretensions to luxurious lifestyles. Not least of all, once their govt careers end, there are millions to be made by the out of office senators and congresspeople with access to the key positions of power. Once on the boards of directors, their corruption continues unabated.

    Is there anyone who hasn’t noticed that our robust manufacturing industries, the once powerful engine of progress and wealth, are gone? Whatever corporations are still left, have been relieved of their tax duties, even given a status of a person with a pulse to yet further render you and me irrelevant and disposable useful idiots.

    In sum: the entire system is corrupt and riddled with ever more expanding tunnels that are funneling torrents of money in every direction within the Tower of Babel. The omnipresence of money everywhere has desensitized the recipients of the largesse to the extent that they no longer even understand that there is a difference between a $100 bill and billion dollar appropriations bill.

    Hell, it’s only money!

    No wonder our leaders no longer criticize third world tin pot dictatorships. Thru their hard work they have just devolved the once super-power into one of those greed-driven oligopolies.

    With the rapid erosion of our once-sacred constitutional rights removed in the name of protection from “terrsts”, we cannot be far away from… fascism?

    Oh, and I don’t think that any “terrsts” care about the US any more. Why bother? Our own system is destroying the once super power all by itself, more effectively and faster that any “terrst” could ever had hoped for. And best of all, to the deafening silence of the stunned populace. Altho’ an occasional muslimist with a bomb in his jock strap still works to stir the impotent and passive masses to ocasional silly outbursts of indignation.

    Sic transit gloria mundi…

  38. The author of the article knows many if not most of the actors in our current fiscal fiasco. His refusal to believe that they are selfish, hubristic, greedy twits is a bit sad. None of those people believe they are corrupt. They all believe they are doing the best possible under the circumstances and they would never knowingly, seriously harm this nation or the world’s economic system yet they still manage to produce lots of pain they feel intellectually but not emotionally or physically since the pain harms others but costs them very little. These people seem incapable of feeling any empathy for the millions harmed by their attempts to create ever larger piles of wealth which their progeny will convert into ostentatious prodigality previously unknown by humanity while the laborers who created the wealth may starve or simply be seriously impoverished for several generations. This is a bit, no a lot, like the way Royalty always looked upon the commoners.

  39. ne Wenglin

    Manipulation is not of necessity a function of conspiracy. Bankers are like sheep; they will follow each other off a cliff, which is what just happened. Herd animals are prey; they don’t actually know how to conspire, they naturally hide in dark corners. This makes them particularly unsuited to consorting with financiers, who in contrast are in a competitive field where advantage comes from creativity.

    Service bankers are dull; investment bankers are sharp. And their domains while related in the purposes of moving capital differ in their respective processes. The brick-and-mortar banker takes lunch and is at the door five minutes before closing time, he has more paid holidays than government workers; out of the office he plays golf. The investment banker doesn’t leave his screens, gets six days off a year and out of the office is impelled to explore patterns for advantage.

    In breaking the wall between commercial and investment we got a circus with the clown in charge. The heads of the deadly bank combines are like the wizard of Oz: clueless and ignorant: a big head composed of smoke. Ask the CEOs of the 13 to come up with a business strategy on 3, 5 and 10 year schedules. Bet not a one would know where to begin. They’re not stupid, just unoriginal and more than happy to continue reaping undeserved salaries for non-performance.

    The policy shift Johnson insists on better serves the financial-economic needs of our system and society, it also is the only way to save the bankers from going up in flames. Because left unchanged we are on a one way track to another train wreck. Who in his right mind outs the card shark and sits down to poker with him the next night?

    So. What about Obama? what about Congress? If our officials won’t listen to appeals for protective regulation, then caveat emptor. Individuals can begin to take control of their money by moving it to smaller institutions. If it is impossible for you to meet the president of your bank or brokerage, it’s too big.

  40. skoksvalley

    How true! We live in the age of corporate domaination. It is no wonder that all of the “talking heads” in the media scream so loud when social justice comes up, their bosses don’t want to lose control of the peasants…

  41. Re: @ Barbara____Interesting to say the least? Biden’s son having a massive heart attack in his forties, and won’t run for dad’s seat? Sestak beats good-ole-boy Specter as Pa. senator, even with Clinton bribing him through Emanuel – who by the way was involved with Rod of Chicago fame too offer up a senatorship nomination too (Obama’s friendly choice?) Miss? Just think – there’s nothing at all illegal about this shenanigans? They (talk shows/sit-coms) laugh about it on Sunday’s TV programming shows as horse-trading politics, per usual, of tossing a shoat through the ring of deception to the next receptive party to carry-on? Funny, but Blaire was Obama’s “Go-To-Guy”,until this comes out. Panetta (ultra liberal Calif.) was/is a joke, period! Clinton’s ” W.H. Chief of Staff (1994-97)”, and member ” B.O.D. NYSE (2004-09)”(Grassleys ~$200mn bonus,plus his pay?) – Obama’s C.I.A. director (2/2009-present) has too make one wonder? Finally,…Obama would never had gotten into office were it not for the “Black Vote”! Obama’s subsequent casting aside the Reverend Wright, like a piece of garbage tells me all I need to know about this Presidents integrity. George H.W. Bush (#41) doesn’t contol America, nor do the Chinese with ~$850bn. of our debt, but the Rothschild Family that literally own the “Bank of England” ,and various large private banks throughout Europe (France ,Brussel’s, Germany, etc., to name a few). PS. I firmly believe that you’ve opened-up a can of worms – definitely a few will managed to escape as bait for the true journalist willing to make a name for themselves, instead of the now defunct sterile contemporary bookshelf type.

  42. I think Simon’s terminology is both helpful and more accurate. The premise that adults should think and operate rationally most of the time has long since been proved wrong by extensive testing of human decision making. Our brains have evolved almost entirely within tribal societies of hunter gatherers, where personal relationships, cultural myths and personal experience produce a mental infrastructure which responds quickly, but often irrationally to threats and opportunities. Our abilities to think rationally outside this tribal heritage are very limited and by no means automatic. One good book on this subject is “Influence: Science and Practice” by Robert Cialdini.
    Labeling people as fools or corrupt focuses on them as individuals, replace them = problem solved, rather than on more fundamental issues of how to set up complex systems that tribal humans can successfully manage over extended periods of time. The titans of finance and the politicians who support them may indeed turn out to be fools and/or corrupt, but that’s an end product of more fundamental failures of systems’ design and management. Behemoth organizations are intrinsically unmanageable even by the best of people.
    I’m totally frustrated by President Obama’s failure to require a downsizing of the banking behemoths. His first mistake was to make Larry Summers his chief economic advisor; Larry is completely captivated by the culture of Goldman Sachs and by his own ego; he is like a Donald Rumsfeld of finance.
    I’ve posted numerous essays about financial reform on my own blog, most of which complement what these authors write.

  43. ne Wenglin wrote:

    “So. What about Obama? what about Congress? If our officials won’t listen to appeals for protective regulation, then caveat emptor.

    Individuals can begin to take control of their money…”

    Sounds like a good first step.

  44. Correction: Dick Grasso NYSE Chairman retires with a total package of $140ml – 2004

  45. It seems the facist elite will be trapped in America with it’s too big to fail and the rest of the world will be beuyond this..the doller will not be the modum of exchange. The USA willl be the third world country that government has planned it to be all along!

  46. What the government and big banks have going together is a symbiotic relationship. They’ve been together, swilling the same kool-aid, and passing love notes around for more than 30 years now. Its going to take quite a bit more than negative polls to tear these miss-matched lovers apart.

  47. Kliment Voroshilov

    Yes, Kal, a liar always must first convince himself of his lies before he can expect to be received credibly by others. And you are right as well about the royalist mentality in Washington. These contemptable snakes are at war with the American people, seeking only to transfer larger and larger portions of public wealth onto their side of the ledger. The most soon-to-be-victimized, the Social Security program, a honey pot to the ruling class and to their wealthy clients, now fairly awaiting plundering. And in their fiscal simony these filth are enabled by clownish, reactionary Tea Party brownshirts, willing to do anything to insure that the plunder comes off unopposed. In my view, libertarians ought to be classed as sociopaths and their religion, libertarianism, as sociopathy writ large. We continue to await an authentic “peoples moment”, no cheap substitutes kindly.

  48. We don’t need more regulations, we MUST to enforce the one we have already. This is another excuse to TAKE OVER!!! They thing they can solve our problems creating more regulations. What they don’t know is; the people in the banking and wall street are 100% ahead of people in Washington all together. They always going to beat the system.
    Let the people (We the People) adjust and fix the financial system, let us decide who wins and who lose. We have the power to do it, no the government. The government can take any bad situation and make it 100% worst. Nothing that the government touch fail!!! The government can’t do anything right. Just few to mention; social security (ponzi scam), FEMA (a joke), post office (broke), DMV (useless), medicare, medicaid (handouts), food stamp (parasite), taxes (incompetence to govern), and etc… Every time that the government decided to increase taxes is because they can’t manage spending. STOP THE SPENDING!!!

  49. Cassandra is really on the ball. We need more like her to keep the pressure on these greedy a$$holes.

  50. One man, one vote was the rallying cry of Nelson Mandela for equal voting rights in South Africa until he triumphed. Until laws are voted for directly for by the people and advertising on the issues is banned, restricted or only publicly financed lobbying will be an easy way to buy government, laws and politicians.

  51. The reason- Congress is owned by banks, financial institutions, and big business (corporations). What evidence does one need beyond the fact that he Senate, the worst dysfunctional body in government, is populated by a high proportion of millionaires?

  52. Jackrabbit

    The people in charge of our strategy towards big banks are not fools and they are not corrupt.*

    I certainly doubt they would admit to being either. Whatever their motives may be they’ll dress it up as “sound policy.”

    Is there anyone that doesn’t think Bernanke was, at the very least, FOOLISH to claim that “subprime is contained?” It is very hard to trust politicians and regulators because of the financial benefits they get (directly and indirectly) by doing what the financial industry wants.

    We all know the banker cool-aid: that big banks are necessary for competitive reasons, and that bankers, like any business people, have an incentive to run their business well (i.e. it is government that is most to blame for the financial crisis). But if there is clear and cogent arguments to counter these shibboleths, then doesn’t that make “he people in charge of our strategy towards big banks” foolish or corrupt?

    Reasonable men may differ on what is prudent but it is clear that to the extent that the banks are allowed to game the system, we are all at risk (and poorer). The bubbles and their ensuing crisis’s keep getting bigger. The sovereign debt crisis may soon show how foolish and/or corrupt “the people in charge of our strategy toward big banks” have been.

    * Simon: I’m sure its difficult to influence policy if you impugn the motives of those making policy. Even so . . .

  53. StatsGuy, I think you are being too generous re Geithner and Summers and, unfortunately, possibly Obama, too. I don’t think they are merely unintended technocrats. Wall Street has taken over the Democratic Party just as thoroughly as the Republican Party.

  54. When the majority whip, Senator Durban, says that Wall Street owns the United States Senate, we don’t need a lot more talk.

  55. I wrote a post on this the other day:

    http://attempter.wordpress.com/2010/05/28/kagan-and-the-corporate-court-1-of-2/

    Part one of two on exactly this problem. I revisit Hamilton’s Federalist #78. It also includes links to my earlier posts on Citizens United.

  56. I looked at the site. they would be better off using the english language to make their points. Maybe I am a fool but it made no sense to me.

  57. sounds to me like a hosuing bubble that hasn’t popped in vancouver yet. my understanding is that because they don’t do those 100% loans it may not be as bad, but when home interest payments consumer such a high percent of income it is not sustainable. I suggest you look at historic rent/own/income values to determine of there is a good shorting opportunity here.

  58. Every private and publically owned business games the system. Every human in many ways games the system. Systems that stay vibrant allow for the it’s gaming. Civilizations age and lose the ability to adapt to the citizen’s gaming the system of the moment. The collapse comes when the citizens collectively no longer have sufficient mass to care enough to put the effort into maintaining the existing system. This conclusion seems to be the dominant thoughts conveyed in commentary all over the internet and in the street. The even greater bulk of the citizens do not even care enough to try and be informed. Is this a general summary of the problem in the West and the US in particular?

  59. Barbara,
    Please eat your beans and rice. Children are starving in Indiana.

  60. Jackrabbit quoted Mr. Johnson:

    “The people in charge of our strategy towards big banks are not fools and they are not corrupt.*

    I certainly doubt they would admit to being either. Whatever their motives may be they’ll dress it up as “sound policy.”

    The Gods of the Copybook Headings:

    “And that after this is accomplished, and the brave new world begins

    When all men are paid for existing and no man must pay for his sins…”

    Rudyard Kipling 1919

    “The central message of the poem is that basic and unvarying aspects of human nature will always re-emerge in every society.”

    http://en.wikipedia.org/wiki/Brave_New_World

  61. “…top Obama administration officials refuse to change their opinions in the slightest; they have dug in behind the idea that they represent the moderate center on banking policy.”

    hey – this is the united states of america, where exceptionalism reigns supreme. we honor all crooks – although, to paraphrase george orwell, some more than others.

  62. Same Shx!t – Different Day

  63. Barbara: The beauty of conspiracy theories is that they simplify actions and relieve their believers of personal responsibility. Their ugliness is that, throughout history, believers in the conspiracies of others have generated the most barbaric and pointless acts of civil strife and war, persecution and torture.

    Having been CEO of a company for 16 years, I tend to dismiss all conspiracy theories on one basis: I haven’t found any individual or group clever enough to justify them; and I’ve worked with some of the most talented people around the globe.

    As Eric Hoffer said in his classic book on extremism “The True Believer”: extremists require a devil (a conspiracy theory requires devils behind the conspiracy) to unite them and then to justify any evil extremists do thereafter, for one cannot negotiate with or show any mercy to a devil. Then extremists go out and imitate their devils in how they behave.(i.e. our political extremists painted Islamic terrorists as devils, then tortured suspected terrorists)

    The opposite of an extremist is a moderate, one who presumes everyone else is like herself and worthy of respect until they absolutely demonstrate that they are not.

    For example, as much as I found George Bush to be a deeply flawed president who weakened our country morally, financially and politically,and I therefore chose to leave the Republican Party, it’s still clear to me that he was well intentioned but weak and shallow, not part of some great conspiracy.

  64. There is an alternate conclusion to Mr. Johnson’s piece other than Washington’s belief that what is good for the biggest banks is best for the economy. That conclusion is true by default only because of the global power of such concentrated wealth and special interest influence in the ‘iron triangle’ of banking-national security(defense contracting)-government. The international finance industry has the ability at any one point in time to collapse or restore global financial health based on it’s monied interests. Washington believes what is best for the big banks is best for America because the banking industry is far more powerful (and potentially punitive)and it is subjugated to that power. One only has to track cash flow over the events of the past 10 years to see what America’s priorities are and remain. Hardship suppresses dissent in a global class struggle.

  65. Wavecrasher

    Let them have it all, and as quickly as possible! The sooner this greed ridden system implodes, as we hang, by the neck, its members the better. This slow decay will take with it too many victims and too many catastrophes. In the end, it will all be the same. As the band Tool has sung, “Cuz I’m praying for rain.
    And I’m praying for tidal waves. I wanna see the ground give way.
    I wanna watch it all go down.”

  66. I use to say fire Summers, Geithner and Bernanke.

    Now, I just say, fire Obama.

  67. My interpretation of cultural capture as understood from the text underneath;

    ‘The universities, for example, are not independent institutions. There may be independent people scattered around in them but that is true of the media as well. And it’s generally true of corporations. It’s true of Fascist states, for that matter. But the institution itself is parasitic. It’s dependent on outside sources of support and those sources of support, such as private wealth, big corporations with grants, and the government (which is so closely interlinked with corporate power you can barely distinguish them), they are essentially what the universities are in the middle of. People within them, who don’t adjust to that structure, who don’t accept it and internalize it (you can’t really work with it unless you internalize it, and believe it); people who don’t do that are likely to be weeded out along the way, starting from kindergarten, all the way up. There are all sorts of filtering devices to get rid of people who are a pain in the neck and think independently. Those of you who have been through college know that the educational system is very highly geared to rewarding conformity and obedience; if you don’t do that, you are a troublemaker. So, it is kind of a filtering device which ends up with people who really honestly (they aren’t lying) internalize the framework of belief and attitudes of the surrounding power system in the society. The elite institutions like, say, Harvard and Princeton and the small upscale colleges, for example, are very much geared to socialization. If you go through a place like Harvard, most of what goes on there is teaching manners; how to behave like a member of the upper classes, how to think the right thoughts, and so on.’
    http://chomsky.info/articles/199710–.htm

  68. ONE MORE !

    QUESTION: You have said that most intellectuals end up obfuscating reality. Do they understand the reality they are obfuscating? Do they understand the social processes they mystify?

    CHOMSKY: Most people are not liars. They can’t tolerate too much cognitive dissidence. I don’t want to deny that there are outright liars, just brazen propagandists. You can find them in journalism and in the academic professions as well. But I don’t think that’s the norm. The norm is obedience, adoption of uncritical attitudes, taking the easy path of self-deception. I think there’s also a selective process in the academic professions and journalism. That is, people who are independent minded and cannot be trusted to be obedient don’t make it, by and large. They’re often filtered out along the way. [...]

    QUESTION: You wrote that Henry Kissinger’s memoirs “give the impression of a middle-level manager who has learned to conceal vacuity with pretentious verbiage.” You doubt that he has any subtle “conceptual framework” or global design. Why do such individuals gain such extraordinary reputations, given what you say about his actual abilities? What does this say about how our society operates?

    CHOMSKY: Our society is not really based on public participation in decision-making in any significant sense. Rather, it is a system of elite decision and periodic public ratification. Certainly people would like to think there’s somebody up there who knows what he’s doing. Since we don’t participate, we don’t control and we don’t even think about the questions of crucial importance, we hope somebody is paying attention who has some competence. Let’s hope the ship has a captain, in other words, since we’re not taking in deciding what’s going on. I think that’s a factor. But also, it is an important feature of the ideological system to impose on people the feeling that they are incompetent to deal with these complex and important issues; they’d better leave it to the captain. One device is to develop a star system, an array of figures who are often media creations or creations of the academic propaganda establishment, whose deep insights we are supposed to admire and to whom we must happily and confidently assign the right to control our lives and control international affairs. In fact, power is very highly concentrated, decision-making is highly concentrated in small interpenetrating elites, ultimately based on ownership of the private economy in large measure, but also in related ideological and political and managerial elites. Since that’s the way the society effectively functions, it has to have political theology that explains that that’s the way it ought to function, which means that you have to establish the pretense that the participants of that elite know what they are doing, in our interest, and have the kind of understanding and access to information that is denied the rest of us, so that we poor slobs ought to just watch, not interfere. Maybe we can choose one or another of them every few years, but it’s their job to manage things, not ours. It’s in this context that we can understand the Kissinger phenomenon. His ignorance and foolishness really are a phenomenon. I’ve written about this in some detail. But he did have a marvelous talent, namely, of playing the role of the philosopher who understands profound things in ways that are beyond the capacity of the ordinary person. He played that role quite elegantly. That’s one reason why I think he was so attractive to the people who actually have power. That’s just the kind of person they need.
    http://chomsky.info/books/reader02.htm

  69. Arguably, an entire generation of politicians, economists and business leaders has been “brain washed” by the free market ideology flowing from the Chicago and Austrian school of economics (Cultural capture.)

    I can’t help feeling Michael Hudson is on to something when he says what is needed is a “mixed economy”. Where there is economic planning by the government (rather than abdicating this responsibility to Wall Street) and where capitalism is regulated. Yes! — The regulation of capitalist enterprise. — Witness the BP oil disaster in the Gulf of Mexico. The immense cost of this environmental disaster will be socialized. Just as losses in TBTF are socialized.

    What Michael Hudson calls junk economics includes: (1) a deregulated financial system leading to housing and financial bubbles, (2) non-taxation of unearned income, (3) privatization of the Commons; ie, water, natural resources, infrastructure, utilities.

    IMHO, what needs to be worked out in our generation is reversing the excesses of free market fundamentalism.

  70. Daniel Davy

    I agree with all these sentiments. It sounds like hyperbole but it isn’t.

  71. “mixed economy”

    Nordic model
    http://en.wikipedia.org/wiki/Nordic_model

    Polder model
    http://en.wikipedia.org/wiki/Polder_model

    Rhineland/German model/French model

  72. ‘This is cultural capture in its purest and most extreme form.’

    “You may remember the story of how the devil and a friend of his were walking down the street, when they saw ahead of them a man stoop down and pick up something from the ground, look at it, and put it away in his pocket. The friend said to the devil, ‘What did that man pick up?’ ‘He picked up a piece of the truth,’ said the devil. ‘That is a very bad business for you, then,’ said his friend. ‘Oh, not at all,’ the devil replied, ‘I am going to help him organize it.’ “You may remember the story of how the devil and a friend of his were walking down the street, when they saw ahead of them a man stoop down and pick up something from the ground, look at it, and put it away in his pocket. The friend said to the devil, ‘What did that man pick up?’ ‘He picked up a piece of the truth,’ said the devil. ‘That is a very bad business for you, then,’ said his friend. ‘Oh, not at all,’ the devil replied, ‘I am going to help him organize it.’

    – Jiddu Krishnamurti

  73. Rene admitted, in part, “There are all sorts of filtering devices to get rid of people who are a pain in the neck and think independently. Those of you who have been through college know that the educational system is very highly geared to rewarding conformity and obedience; if you don’t do that, you are a troublemaker.”

    Well, it only took a decade to implement the filtering devices in earnest and the job appears to be complete.

    Attractive, politically correct BP spokeswoman assured the “media” on Day 7 or something early on that “the best minds on the planet are working on the problem”.

    Of course, after the first attempt at getting a sucking tube into the gusher turned out to be so lame

    (no one was able to “predict” the “risk” of formation of ice crystals???!!! – yikes)

    even the Chem 101 C-grade students at local community colleges started to wonder about the “best minds”.

    Next up in the “yikes” category – the “dispersents” AKA detergents – Tide gets the stain out…

    at 5000 feet below in the sea, between the pressure and temperature and gas, well, turns out another prediction COULD have been made – you’ve got a “natural” kind of HPLC (high pressure liquid chromotography) situation and sure enough, now the Tide-clean oil has been broken down into individual hydrocarbons…benzene rings…and the count is off the charts.

    You can’t “see” hydrocarbons like you could the see the oil…expect frogs with 6 legs and 14 eyes in the next generation…genetics anyone?

    Where are the keen, calculating and perfect minds among Rube Goldberg’s followers…? Figuring out the political and legal machinations FIRST and FOREMOST.

    No help there…

    Well, so how about the Shrimpers…? “…Looky here – FREE oil – let’s suck it up and we’ll become rich processing it into fuel for our boats…”

    Right-o, Rene. Let’s keep filtering out the “independents” to let those “best minds” float up to the top…

    Isn’t the “Independent” Party really the largest political party in USA…?

    Raise your hand, kids, if you would rather see windmills out in the water now spoiling your beach front property view…

  74. rene wrote:

    “My interpretation of cultural capture as understood from the text underneath; ”

    My interpretation of clutural capture is…….

    “Stockholm syndrome, a term used to describe a paradoxical psychological phenomenon wherein hostages express adulation and have positive feelings towards their captors that appear irrational in light of the danger or risk endured by the victims.

    Hostages who develop Stockholm syndrome often view the perpetrator as giving life by simply not taking it. ”

    http://en.wikipedia.org/wiki/Stockholm_syndrome

  75. The American approach to the big banks is precisely the same as its approach to polluters, chemicals manufacturers, health insurers, car makers and on and on. Big business is presumed, not just innocent, but entirely exempt from guilt or even suspicion until overwhelming, monstrously damning evidence is amassed (usually by third parties, since the government abrogated its oversight responsibilities in the Reagan years).

    This is by no means an American principle across the board. Arabs and Muslims are presumed guilty. Progressives are presumed guilty. African Americans and Latinos are presumed guilty.

    But unlike any other major industrial democracy, the US allows chemicals, business practices, etc., unchecked, unreviewed, until there is powerful evidence otherwise. For this reason, Americans are daily exposed to more and worse chemicals than anyone in Europe.

    American attitudes aren’t shifting towards the banks because, despite the now overwhelming evidence condemning banking practices, the sheer wealth behind those practices is too great to overcome.

    Unless the Europeans get these banks in Europe, nothing will change.

  76. Okay, kids, everyone who would now rather have windmills spoiling your beach front property view – raise your hands.

    I believe that the Independent Party is the largest political party in the USA. Seems only the blogging institution is unaware of that fact :-)

    Thanks, Rene, for starting a self-help, AA-like group by admitting to what we do, “There are all sorts of filtering devices to get rid of people who are a pain in the neck and think independently.”

  77. tippygolden

    thanks rene for the links

  78. Anonymous wrote:

    May 30, 2010 at 8:29 pm

    “There are all sorts of filtering devices to get rid of people who are a pain in the neck and think independently.

    Heads up. Anonymous 8:29pm, has a back stage pass.

  79. If dreams are not beyond ones grasp then what is heaven for?

  80. Bayard Waterbury

    Simon, on this point I am in incontrovertable disagreement:

    “The people in charge of our strategy towards big banks are not fools and they are not corrupt; they are also not doing things just because someone on Wall Street calls them up. Our top policymakers are simply convinced that what is good for the biggest and most dangerous element on Wall Street is good for the American economy.”

    I know what you stand for and I agree entirely with your approach. But, on this point I see it very differently. What is happening between Wall Street, Ben Bernanke, Larry Summers, and Tim Geither is pure plutocracy. Anyone who is honest can see that what is being done by the big banks is just not helping the American general economy. In fact, just the opposite: it is helping only them, and is, in point of fact, simply stalling the possibility of growth and recovery. Their economic dominance is squeezing out the smaller (but more numerous) segments of the economy (primarily small businesses) which have, in other recoveries, been the engine of growth. The biggest banks take both depositors money and whatever the FED will put in their coffers, and are mostly investing in extraneous (as to growth) investment vehicles, focusing on churning for profits and not lending for growth. In this way, they essentially staunch the flow of economic life blood.

    This is the purest large plutocracy since the Soviet Union in the ’60’s, ’70’s and ’80’s, during which time their private economy was almost completely at a standstill, and the governmentally supported oligarchs dominated their economic landscape. Mark my words on this one: the US is primed for a public vs. government revolution which will, fairly soon, rival in breadth what happened in Russia in 1991.

    No, we don’t have the repressive atrocities perpetrated on the Russian citizenry during this era, but what is happening the the American taxpayer, given our progressive history, is equally as brutal and amoral on the part of the plutocrats who are presently ruling America with an iron fist. Once things turn more negative globally, which they will, in terms of global recovery (because of the dominance globally of the international finance community) we will again see a collapse. But this time Congress won’t be able to stop the bleeding with billions more support for their Congressional zoo keepers. If they try to do so, our government will collapse.

  81. Edwin, you hit the nail on the head.

    Our nation’s problems will never be solved until we craft better management systems and develop better incentives that encourage people to “do the right thing.”

    Show me a colossal systemic meltdown and I’ll show you a system riddled with perverse incentives.

  82. Lovely piece. My sentiments too. I took a flyer that a Wikipedia piece would exist on the Downfall of both Communism and Capitalism. I was a bit surprised.

    http://en.wikipedia.org/wiki/The_Downfall_of_Capitalism_and_Communism

  83. I think we are past the point of using incentives “that encourage people to do the right thing”. Punishment for not doing the right thing or doing the wrong thing may be more effective.

  84. Kliment Voroshilov

    Michael Hudson is the economist for the hour, a real peoples’ economist. He envisions our present dilema in the perspective of the history of economics, seeing developments as manifestations of broader forces and bringing a moral dimension to the enterprize that few do. Hudson is no vapid partisan apologist – that is to say no Paul Krugman – neither is he to be found on the mainsteam media. But solid analysis? On every page.

  85. The_Observer

    China has also upped the reserves that Chinese banks now need to hold. They are also tackling the housing bubble which is detrimental to their society as unaffordable housing could add to the riots that occur there.

  86. The_Observer

    And from another part of the world, Australia has raised interest rates and is talking of a windfall tax on its profitable banks. I think that’s reasonable considering what the Australian government did to ensure those profits through finance guarantees and the stimulus budget. Maybe the Obama administration could do the same with USA banks with the addition of another windfall tax on wall-street bonuses (cash and kind). That would be an extremely popular measure with Joe public.

  87. Lauteur Calme

    It is undeniable that U.S. politicians, the Federal Reserve, and crafty financiers on Wall Street are responsible for the underlying global financial crisis. As a recent Chinese economist stated, where ever there is wealth in the world, and in particular the U.S. (i.e., 401K, Real Estate, etc), opportunistic and deceptive practices by investment bankers on Wall Street eventually steal it while politicians look away.

    The global reaction on the egregious behavior by Goldman Sachs which could have been prevented by U.S. politicians is almost universally negative. With equilibrium analysis, it is glaringly obvious that Wall Street is one huge Ponzi scheme. In addition, for years financial policies coming out of Washington, D.C. have been in the interests of bankers in New York and elsewhere.

    The fact that U.S. politicians have been bought and sold for years is nothing new. However, there are ironies to this global financial debacle that are interesting. For instance, seeing Clinton and Bush beg for money from U.S. citizens and the global community for Haitian relief after the earthquake. It’s also ironic that one of the Federal Reserve’s mandate is to manage the flow of money and credit in the U.S. economy, much less the world.

    One must ask what does Blankfein(absolutely disgusting), Greenspan(incredibly adroit at trying to exculpate through technical jargon), Rubin(always convivial as long as it benefits him), Summers(the apotheosis of arrogance), Madoff(one big lie), Bernake(a pawn), and Geithner(sounds like a robot) have in common?

  88. Tom Edwards

    If Geithner, Bernanke, Blanfkein, Dimon, Shapiro, Bair et all are not considered corrupt, there is no such thing.

    William Black on others have demonstrated this was all about massive FRAUD by banksters and criminal negligence on the part of regulators, in particular Geithner who knowingly broke the law and yet remains in his job.

  89. It made no sense to you because it’s the ranting of mad men. They’re so removed from anything like credible discourse they don’t see the farcical effect of political bombast laid out like 1920s pamphleteering.

  90. ‘If you’ve read George Orwell’s Animal Farm which he wrote in the mid-1940s, it was a satire on the Soviet Union, a totalitarian state. It was a big hit. Everybody loved it. Turns out he wrote an introduction to Animal Farm which was suppressed. It only appeared 30 years later. Someone had found it in his papers. The introduction to Animal Farm was about “Literary Censorship in England” and what it says is that obviously this book is ridiculing the Soviet Union and its totalitarian structure. But he said England is not all that different. We don’t have the KGB on our neck, but the end result comes out pretty much the same. People who have independent ideas or who think the wrong kind of thoughts are cut out.

    He talks a little, only two sentences, about the institutional structure. He asks, why does this happen? Well, one, because the press is owned by wealthy people who only want certain things to reach the public. The other thing he says is that when you go through the elite education system, when you go through the proper schools in Oxford, you learn that there are certain things it’s not proper to say and there are certain thoughts that are not proper to have. That is the socialization role of elite institutions and if you don’t adapt to that, you’re usually out. Those two sentences more or less tell the story.

    When you critique the media and you say, look, here is what Anthony Lewis or somebody else is writing, they get very angry. They say, quite correctly, “nobody ever tells me what to write. I write anything I like. All this business about pressures and constraints is nonsense because I’m never under any pressure.” Which is completely true, but the point is that they wouldn’t be there unless they had already demonstrated that nobody has to tell them what to write because they are going say the right thing. If they had started off at the Metro desk, or something, and had pursued the wrong kind of stories, they never would have made it to the positions where they can now say anything they like. The same is mostly true of university faculty in the more ideological disciplines. They have been through the socialization system.’

  91. Never ever underestimate the relevance and message of movies such as the Devil’s Advocate. Especially so in regards to the Devil’s Advocate.

  92. most fascinating to read how Simon Johnson says these Banksters are “captured” by the system. doesn’t absolve them of their crimes, however. those of us outside the “system” can see what goes on.

    I, too, hope for a quick crash as soon as possible. but i suppose the Banksters will not oblige. this is their world and they do whatever they want to. The ride is quite harrowing, though. plus, all the innocents involved.

    the rich are different. they have money, lol.

  93. No matter what is written it remains that the only viable solution to this problem is to stop legal bribes by individuals, PACs and corporations under the guise of campaign contributions.

    The only votes that truly count are those which determine and place before the public the 2 schnooks as a choice of the lesser of 2 evils we must accept.

    The guys who present us with those choices must be stopped.

    If this country’s voters are to survive as anything other than serfs obligated to the wealthiest 1%, we must remove the right to influence legislators by cash contributions.

  94. Actually , the Big Banks share the responsibility of running the country with Big Oil, Big Pharma, and Big Insurance to name a few.

    Congress is used as a medium to pass the laws that they ( the oligops.) write.

  95. Ban lobbyists, limit corporate contributions to those of individuals, require ads to abide by limits and say who they represent.

  96. This from Ursino, one of the members of our message board at http://forums.wallstreetexaminer.com/index.php?showtopic=880616&st=0&#entry924678 which I thought was particularly insightful:

    Quote from Simon Johnson essay:

    “The people in charge of our strategy towards big banks are not fools and they are not corrupt; they are also not doing things just because someone on Wall Street calls them up. Our top policymakers are simply convinced that what is good for the biggest and most dangerous element on Wall Street is good for the American economy.”
    _______

    Hmmm. Most contradictory. Convinced of the grossly obscene but not fools, corrupt or unduly influenced by a powerful elitist minority. Makes me wonder what he was thinking as he wrote that paragraph.

  97. Thanks for the laugh of the day – all I did was forget to fill out name and email and so the post went out as “Anonymous”.

    I did not mean to PRETEND I was YOU – LOL

  98. Please note I did not suggest rational thought is automatic, which is patently nonsensical, but that it is morally incumbent on decision-makers. Anyone who thinks this idea is outmoded should consider what would happen to a drunk driver who tried a cultural capture defense after killing a family of six: “All my friends do it, and I never thought it would do any harm,” would probably lead to conviction on six counts of second-degree murder, with consecutive maximum sentences, as most juries do not take kindly to the idea that you didn’t think in circumstances where you damn well should have. The fact that rational and ethical thought require effort does not absolve anyone from responsibility for trying to engage in them before taking actions that might reasonably be expected to have some effect on others.

  99. Bankers’ ‘doomsday scenarios’ under fire

    May. 31, 2010 2:50PM – Globe & Mail

    “Banks are exaggerating the economic effects of the regulations they are likely to face in the coming years, the economist running an international impact study has told the Financial Times.”

    http://tinyurl.com/39cmcm8

  100. That is because we still don’t know the details of the Cheney meeting with high-level energy execs that occurred within weeks of GWB taking office.

  101. Hear, hear! Well put Cassandra…

  102. Kliment, what exactly is a “real peoples’s economist?”. Who are “real people,” peasants, merchants, tradesmen, warriors, educators, sages, money lenders, et. al? IMO, it seems that we need economists with a solid foundation in Confucianism.

  103. I’m not calling it a manipulation. At the level of kleptocracy, the measure of criminality is actions, period. That’s why I said it was philosophically, i.e. morally and spiritually, true.

    But their rigged “law” doesn’t see it that way, and most people have been brainwashed into the kleptocratically pseudo-legalistic way of seeing things. So they might need some rhetorical nudging.

  104. The giant face-sucking squid that is American “banking” has already got it’s tentacles jammed down the throats of Europe. We have just recently seen a preview of what is to come (French AAA Bond ratings threatened). Stay tuned!

  105. You are absolutely right. That is why our version of democracy will not work until the plutocrats/oligarches are put out of business.

    America has become a breeding ground for personal greed. Until we reckon with this, nothing positive in the long term can be accomplished. I can’t even begin to outline what steps we need to take to overcome this. Perhaps it will take a total collapse of our economy to drive the point home. However, as long as the plutocrats/oligarches can continue sucking the vitality out of other nations, ti will only prolong our slow descendance into infamy.

  106. You are right but so naive. The US system as it exists will never let that happen because our pols are owned by corporations.

    Yes, what the Aussies are doing makes a lot of sense. Perhaps their Parliamentary system is the facilitator? Perhaps Australian pols are actually accountable to their constituents?

  107. Steve Koch

    Are Simon and Kwak captured? Their articles and book (13 Bankers) are very careful to NOT accuse the bankers/corporations and our totally captured government of criminal fraud, negligence, or even incompetents. In the end, Simon and Kwak’s ‘polite’, ‘nobody-really-new-what-they-were-doing’ arguments have effectively done NOTHING BUT excuse, confuse, and provide cover for the Corporate/Government Criminals (CGCs).

    For the invasion of Iraq, the CGCs convinced Americans 1) Sadam = Osama, Al Qaida, and 9/11, 2) Sadam had WMDs and was days away from using them, 3) the entire world wanted the U.S. to take over Iraq, and 4) radical social changes were necessary to defend ourselves against terrorists lurking everywhere. The CGCs are so powerful that, to this day, most Americans whole-heartedly believe these four lies.

    When the economic crisis exposed the (next) inevitable consequences of the CGC’s activities, the CGCs convinced Americans 1) the housing bubble was a natural market development that no one was, or should have been concerned with, and, even if so, it was a liberal conspiracy to help undeserving, socially worthless, low-income losers, 2) TARP was the entire ‘bailout’ (Simons reference to “the best profile to date of Tim Geithner, by John Heilemann” is proof that he is complicit in this deception), 3) the CGCs didn’t really need a bailout, and, even if so, the $700 billion TARP was very minor and was quickly paid back with generous profits to the tax payers, 4) the crisis was quickly and easily contained and the economy is well on its way to a healthy recovery, and 5) the CGCs are furious about the new ‘Finance Reform Bill’ and, therefore, all the problems must be solved (time to get back to the party!).

    Simon and Kwak need to get with William Black, Janet Tavakoli, Dylan Ratigan, Naomi Klein, Ives Smith, Max Keiser, Elizabeth Warren, etc. The CGCs *ARE CRIMINALS*, and they MUST not only be publically accused of their crimes, they MUST be investigated, indicted, prosecuted, convicted, thrown in jail, and OUR wealth and power taken back from them. Anyone who says this is too farfetched is wrong… William Black’s example of how the government finally did its job and contained the S&L Crisis is 100% proof that it can and MUST be done.

    Please everybody, read Naomi Klein’s book ‘The Shock Doctrine: The Rise of Disaster Capitalism’ to get a broad perspective of who the CGCs are and what their ‘Globalization’ and ‘Free Market’ objectives and methods are. Also, please consider William Black’s argument: the economic crisis is the direct result of “control fraud” (criminal fraud perpetrated by top corporate executives downward) and the only way to stop the criminals is to use our laws and justice system.

  108. Kliment, who are the “real people”? If they do not share your politics do you still consider them real people?

  109. I’ll boil it down. There’s been a conspiracy in this country since the civil war.. at least. It’s infantile not to believe this; the proof’s all over the place.
    what do you think “think tanks” are for?
    We have a totally corrupt and police state government.
    We live in a state of total propaganda which we believe to our detriment and division while we are looted in front of our eyes, while our jaws dropped and drool ran out of our mouths. While we are told that our financial system would have collapsed if the government hadn’t robbed US. But, It HAS collapsed.
    If you’re not desperately poor now, just wait a few months.
    The American people are the frog in the proverbial pot and it’s getting hotter, little froggie.
    Why would there be laws against conspiracy if there weren’t any? You think all that power and money wouldn’t inspire a conspiracy? I laugh at you!

  110. When you’re viewpoint is captured by a culture you think your actions are both moral and rational; though they are obviously immoral and irrational to those outside the culture. Islamic terrorists are extreme example of this, but Larry Summers,Tim Geitner, Pope Benedict XVI, and Lloyd Blankfein are more common cases. Their frames of reference lead to rational justification of their actions by their own minds;including choices that are obviously immoral and destructive to those of us with other frames of reference. Effort at rational thought is not the issue… reducing the problem to expecting rational thought by the culturally biased is oversimplifying the challenge. Cultural capture literally makes one unable to see what is blatantly obvious from a more neutral perspective. Rational thought by an individual will almost always concur with his/her pre-existing cultural biases. The first step in effective regulation is to pick people outside the culture they are to regulate, then work to prevent them from becoming too cozy with that culture. The movie Avatar involves that very theme, although with a flip-side perspective; going native causes some to betray their own cultures….as seen by those still in those cultures. We, of course, sympathize with those who go native.
    We agree that regulators failed. We are both interested in making regulation more effective over the long haul. Where we differ is which step in managing the system has the primary flaw.

  111. fresno dan

    “Finally, people in the same field begin to think alike, whether they are in oversight roles or not.”

    Very true. I’m at the FDA, and the idea of importing finished drugs is anathma – even though 95 precent of the active ingredients are imported.

    I can never get a LOGICAL explanation of why the finished product would be so susceptable to counterfeiting, but not the raw materials. As well as the fact that high value food is imported, high value booze, etcetera – but somehow all the prescription drugs will be intercepted and adulterated. Hmmmm…

  112. The reason big business such as Big Oil, Big Finance, Big Pharma, Big Ag, Big Health Insurance, Big Health Care, etc. own our political system is that we have allowed them to own the election process. As it is now, very large amounts of money from anywhere in this nation can be used in federal elections, distorting those elections such that they become “corporate” elections rather than federal elections. I have a very simple and straight forward suggestion for dramatically reducing the influence of big business on the election process. We should restrict, through federal election laws, contributions to candidates for federal office to residents of the election district. What this means is that only residents of a congressional district or state would be allowed to contribute to a candidate for that federal office. This federal election law would apply to Political Action Committees as well. Corporations would only be allowed to broadcast political messages in the state they are incorporated in. This would not only reduce the influence of corporations on elections but would also reduce the size and duration of election campaigns. Only when a significant amount of corporate money is eliminated from the election process will our congress and government begin to act as servants of the people instead of servants of big business.

  113. It all starts with how elections are financed. The reason big business such as Big Oil, Big Finance, Big Pharma, Big Ag, Big Health Insurance, Big Health Care, etc. own our political system is that we have allowed them to own the election process. As it is now, very large amounts of money from anywhere in this nation can be used in federal elections, distorting those elections such that they become “corporate” elections rather than federal elections. I have a very simple and straight forward suggestion for dramatically reducing the influence of big business on the election process. We should restrict, through federal election laws, contributions to candidates for federal office to residents of the election district. What this means is that only residents of a congressional district or state would be allowed to contribute to a candidate for that federal office. This federal election law would apply to Political Action Committees as well. Corporations would only be allowed to broadcast political messages in the state they are incorporated in. This would not only reduce the influence of corporations on elections but would also reduce the size and duration of election campaigns. Only when a significant amount of corporate money is eliminated from the election process will our congress and government begin to act as servants of the people instead of servants of big business.

  114. The reason big business such as Big Oil, Big Finance, Big Pharma, Big Ag, Big Health Insurance, Big Health Care, etc. own our political system is that we have allowed them to own the election process. As it is now, very large amounts of money from anywhere in this nation can be used in federal elections, distorting those elections such that they become “corporate” elections rather than federal elections. I have a very simple and straight forward suggestion for dramatically reducing the influence of big business on the election process. We should restrict, through federal election laws, contributions to candidates for federal office to residents of the election district. What this means is that only residents of a congressional district or state would be allowed to contribute to a candidate for that federal office. This federal election law would apply to Political Action Committees as well. Corporations would only be allowed to broadcast political messages in the state they are incorporated in. This would not only reduce the influence of corporations on elections but would also reduce the size and duration of election campaigns. Only when a significant amount of corporate money is eliminated from the election process will our congress and government begin to act as servants of the people instead of servants of big business. It all starts with contributions to election campaigns.

  115. We need to start at the very beginning of the election process. It all starts with how elections are financed.

    The reason big business such as Big Oil, Big Finance, Big Pharma, Big Ag, Big Health Insurance, Big Health Care, etc. own our political system is that we have allowed them to own the election process. As it is now, very large amounts of money from anywhere in this nation can be used in federal elections, distorting those elections such that they become “corporate” elections rather than federal elections. I have a very simple and straight forward suggestion for dramatically reducing the influence of big business on the election process. We should restrict, through federal election laws, contributions to candidates for federal office to residents of the election district. What this means is that only residents of a congressional district or state would be allowed to contribute to a candidate for that federal office. This federal election law would apply to Political Action Committees as well. Corporations would only be allowed to broadcast political messages in the state they are incorporated in. This would not only reduce the influence of corporations on elections but would also reduce the size and duration of election campaigns. Only when a significant amount of corporate money is eliminated from the election process will our congress and government begin to act as servants of the people instead of servants of big business.

  116. The Aussie Parliamentary system does not have an UN-representative Senate with a stupid filibuster rule!

    We need to: 1) get rid of the filibuster rule; 2) make the senate representative or get rid of it.

  117. It all starts with how elections are financed. The reason big business such as Big Oil, Big Finance, Big Pharma, Big Ag, Big Health Insurance, Big Health Care, etc. own our political system is that we have allowed them to own the election process. As it is now, very large amounts of money from anywhere in this nation can be used in federal elections, distorting those elections such that they become “corporate” elections rather than federal elections. I have a very simple and straight forward suggestion for dramatically reducing the influence of big business on the election process. We should restrict, through federal election laws, contributions to candidates for federal office to residents of the election district. What this means is that only residents of a congressional district or state would be allowed to contribute to a candidate for that federal office. This federal election law would apply to Political Action Committees as well. Corporations would only be allowed to broadcast political messages in the state they are incorporated in. This would not only reduce the influence of corporations on elections but would also reduce the size and duration of election campaigns. Only when a significant amount of corporate money is eliminated from the election process will our congress and government begin to act as servants of the people instead of servants of big business.

    Public financing of elections would also work.

  118. re: “Are Simon and Kwak captured? Their articles and book (13 Bankers) are very careful to NOT accuse the bankers/corporations and our totally captured government of criminal fraud, negligence, or even incompetents.”

    I think Simon and James know exactly what they are doing. I think they know that it serves no purpose to accuse someone of being a criminal if … if ones purpose is to influence them. Using certain measures of judgement might indicate criminal fraud. But as long as one seeks to influence the only thing one should attack are the ideas, not the person. That being said, I too think that Geithner, Summers, Rubin, Bernanke should all be replaced.

  119. I can never get a LOGICAL explanation of why the finished product would be so susceptable to counterfeiting, but not the raw materials. As well as the fact that high value food is imported, high value booze, etcetera – but somehow all the prescription drugs will be intercepted and adulterated. Hmmmm…